Family wineries

A new winery organization seeks regulatory reform of barriers to small wineries.

Apr 1, 2009

The growth of Washington’s viticulture scene in the past decade has been extraordinary. There are now nearly 600 wineries in operation, making it the second largest wine-producing state in the nation, trailing only California (having approximately 1,500 wineries). With a burgeoning membership base, the industry has become diversified to the point where it is difficult for one advocacy organization to meet the needs of the entire state’s winemakers.

Family Wineries of Washington State was formed to advocate for issues of importance to small artisan wineries. The group hopes to work with the state’s primary advocacy organization, the Washington Wine Institute, while acting independently on the initiatives not addressed by the institute, but considered important to small family wineries.

"We hear much about the need for the Washington wine industry to speak with one voice," says John Morgan, winemaker of Lost River Winery and Family Wineries’ secretary/treasurer. "Family Wineries seeks to ensure that this voice is a chorus and that small wineries are part of it."

The core mission of the organization is to seek regulatory reform and modernize state laws that date back to the end of the Prohibition era.

"The fundamental problem with the Washington state liquor code in our view is the ‘permissive’ nature of the statute. Under this system, if an activity is not specifically permitted, it is prohibited," explains Morgan. "This approach is beneficial to entrenched interests, but stifling to innovation. Obviously, innovations such as Internet shipping need to be addressed by new legislation, but things as silly as having a cat or a guitar player in a tasting room have also required special exceptions."

Ease the burden

Family Wineries plans to work strategically with state lawmakers to achieve comprehensive regulatory reform and ease the burden on small wineries. As Paul Beveridge, Family Wineries board president and winemaker of Wilridge Winery, puts it, "Washington State has eliminated the mandatory three-tiered system, but there are some vestiges left over from the repeal of prohibition that continue to plague small wineries."

The three-tiered system required that licensed alcohol producers sold to licensed distributors that sold to licensed retailers.

The group’s primary proposal, the Wine Law Modernization Act, would update Washington’s laws applicable to beer and wine allowing the state’s primary wine regulatory agency, the Washington State Liquor Control Board, to concentrate on its core missions of protecting public safety and collecting taxes. Economic activities concerning wine that do not jeopardize public safety would no longer be policed by the Liquor Control Board, but be regulated by existing laws governing free trade of goods.

Recently, the Joint Select Committee on Beer and Wine Reform reviewed Washington’s laws and determined that the statutes need only incremental revisions. This ruling struck a blow to small wineries—who were hoping for fundamental reform—and many of which don’t have the organizational structure in place to deal with the state liquor code’s complex requirements.

"Small wineries do not benefit from the economies of scale that large wineries enjoy," said Beveridge. "We cannot afford the lawyers, accountants, and consultants it takes to comply with the economic regulations in Washington State and many others states."

An example of a burdensome regulation for small wineries that Morgan provides is the state mandated cash-on-delivery payment requirement for wine deliveries. "While large wholesalers tend to use electronic fund transfers or deposit accounts, the scale of small self-distributed wineries means that they deal in business checks," he explains. "If a proprietor is not available to write a check at the time of delivery, a winery owner is faced with the choice of violating the law or rescheduling delivery: two bad choices."

Morgan is intimately familiar with the barriers that small wineries in Washington face. He, his wife Barbara, and stepson Liam, operate Lost River Winery in Mazama, which debuted its first commercial release in 2003. At the time of its opening, it was only the second winery in Okanogan County. Morgan recalls having, "to pretty much make things up as we went along as far as county planning was concerned."

Morgan is one of the 20 founding members of the group, which relies on volunteers and has a democratic process for determining policy initiatives and positions. Full voting membership is open to all Washington state wineries that qualify for the federal small producers’ tax credit. Dues are voluntary, but generally range from $10 to $1,000 annually, with a recommended level of $100.

Main benefit

The main benefit of being a member, said Morgan, is the ability to set the priorities of the organization. "We pride ourselves on the degree to which we seek input from members on the organization’s positions and priorities. We initially surveyed our membership on a wide range of topics to find areas of consensus and to set priorities. As we go forward, we continue to survey members with regard to their position on specific issues," he relates.

Established just over a year ago, the group has been diligent in its quest for regulatory reform. It drafted two additional bills: The Small Winery Tax Reporting Relief Act, and the Craft Winery Development Act.

The former would reduce, from monthly to annually, the number of times wineries with production of less than 6,000 gallons have to report and pay their excise taxes to the state. The latter would exempt small "craft" wineries from the economic provisions of the liquor law, and free them from unnecessary and intrusive economic regulation at no cost to the taxpayer.

Lawmakers’ reception

So far, Beveridge has been pleased with state lawmakers’ reception to the plight of family-owned wineries. If unsuccessful with their proposals this year, the family winery group planned to continue working for changes in the coming legislative sessions.

In addition to working with state lawmakers, the organization is seeking to engage and enlist consumers in the process of wine law reform since, as Morgan puts it, they are "ultimately the victims of inefficiency and restrictions in wine trade."

Last fall, Family Wineries unveiled a program called Friends of the Family, which is aimed at getting consumers involved.

"We are very excited about our Friends of the Family program. Wine consumers have the most to gain from the reforms we are seeking," said Beveridge. "We want to start a grass-roots wave by getting wine consumers involved in seeking reform."